Wall Street ends higher after factory data; Dow, S&P up for week

By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. stocks rose on Friday after surprisingly strong manufacturing data overshadowed expectations that the Federal Reserve might reduce stimulus earlier than expected.

The Dow Jones industrial average and the S&P 500 rose for the week as well, their fourth straight week of gains.

Factory activity expanded around the world, several business surveys showed, with Chinese manufacturers reporting the fastest upturn in 18 months. The Institute for Supply Management (ISM) said on Friday its index of U.S. factory activity rose to 56.4 in October, its best reading since April 2011.

While the news underscored views that the Federal Reserve may be considering scaling back its stimulus sooner than some market participants have been expecting, it also gave investors surprising evidence of the manufacturing sector's strength.

The reports "confirmed that maybe the economy isn't quite as weak or rolling over" as some expected, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, which manages about $58 billion in assets.

The Fed on Wednesday decided to continue its stimulus program, citing economic weakness.

Boeing Co shares gained 1.9 percent to $133.03, a day after it said it would increase production of its 737 aircraft to 47 planes per month by 2017 from 38 now - a move that analysts said bodes well for the company.

The Dow Jones industrial average <.dji> rose 69.80 points, or 0.45 percent, to end at 15,615.55. The Standard & Poor's 500 Index <.spx> gained 5.10 points, or 0.29 percent, to finish at 1,761.64. The Nasdaq Composite Index <.ixic> added 2.34 points, or 0.06 percent, to close at 3,922.04.

For the week, the Dow rose 0.3 percent and the S&P 500 gained 0.1 percent, while the Nasdaq slipped 0.5 percent.

On the Nasdaq, shares of First Solar Inc jumped 17.6 percent to $59.14 after the U.S. solar panel manufacturer's results beat forecasts and the company raised its full-year profit outlook.

Among decliners, shares of Chevron Corp slid 1.6 percent to $118.01 after third-quarter revenue fell short of expectations.

American International Group Inc dropped 6.5 percent to $48.28, a day after the insurer reported earnings that slightly beat expectations. However, analysts expected better results in the insurer's consumer lines business and said it benefited from a favorable tax rate this most recent quarter.

The latest results show the mixed picture in earnings. With about 74 percent of S&P 500 companies having reported results so far, 68.5 percent have topped Wall Street's expectations, above the long-term average of 63 percent, while just 53.3 percent have topped revenue forecasts, below the 61 percent average since 2002, Thomson Reuters data showed.

Although the three major U.S. stock indexes ended Friday's session with modest gains, the market's breadth was negative.

Decliners outnumbered advancers by a ratio of 8 to 7 on the New York Stock Exchange, while on the Nasdaq, three stocks fell for every two that rose.

(Additional reporting by Luke Swiderski Editing by Nick Zieminski and Jan Paschal)

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Asia factory sector upbeat, led by China

BEIJING (Reuters) - Asian manufacturing activity picked up in October led by China, where factory sector growth hit its fastest pace in 18 months off the back of new orders, purchasing managers' reports showed on Friday.

The surveys provide a more upbeat view of world demand following a month in which a political standoff in Washington over the U.S. debt ceiling and the sixth straight cut in IMF global economic forecasts had raised fresh concerns about the health of the global economy.

China's official purchasing managers index (PMI) rose to 51.4 in October, up from 51.1 in September and above expectations for a reading of 51.2. A PMI reading above 50 suggests expansion from the previous month, while a figure below 50 points to contraction.

"With global demand momentum likely to pick up gradually and domestic demand growth remaining solid, we expect GDP growth to comfortably exceed the government's bottom line in the coming quarters," Louis Kuijs, an economist at RBS, said of the China PMI in a client note.

The China PMI offered some support to weak Asian markets on Friday and data elsewhere in Asia also pointed to brighter economic prospects.

The HSBC/Markit PMI for South Korea showed factory activity expanded for the first time in five months and separate data showed the country's exports in October handily beat expectations to hit a record high of $50.5 billion.

Factory activity in major exporter Taiwan, key to many global tech supply chains, was running at its fastest pace since March 2012, an HSBC/Markit PMI showed.

Japan reported on Thursday that its factory activity grew at the fastest pace in more than three years as the Markit/JMMA PMI rose to a seasonally adjusted 54.2, adding to hopes that the world's third-largest economy and home to big brand names like Sony and Toyota is pulling out of two decades of stagnation.

PMI reports from India and the United States are expected later in the day. A euro zone PMI is due on Monday.

The rise in China's official PMI offered some relief to the growth outlook for the economy after a disappointing run of data last month, which included an unexpected slide in exports.

A breakdown of the sub-indexes showed that new orders in large industries reached 53.8, while for small industries the number was just 48.8, suggesting larger firms are benefiting more from the stabilising economy.

"The PMI data for October shows a continued increase, indicating a preliminary stabilisation in the economy," Zhang Liqun, an economist at the cabinet think-tank Development Research Center, said in a statement released with the PMI.

"The foundation for a recovery is not yet solid."

The HSBC/Markit PMI for China rose to 50.9 in October from 50.2 in September, suggesting factories were humming at their strongest pace in seven months.

The figures showed a surprise jump in new export orders, with many factories reporting stronger demand from the United States. (Additional reporting by Stanley White in TOKYO, Natalie Thomas in BEIJING, Faith Hung in TAIPEI and Se Young Lee in SEOUL; Writing by Neil Fullick; Editing by Kim Coghill)

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